A.M. Best Affirms Ratings of Health Care Service Corporation and Its Affiliates; Revises Outlook to Stable

OLDWICK, N.J.--()--A.M. Best has affirmed the financial strength rating (FSR) of A+ (Superior) and the issuer credit ratings (ICR) of “aa-” for Health Care Service Corporation, a Mutual Legal Reserve Company (d/b/a Blue Cross Blue Shield of Illinois/Texas/New Mexico/Oklahoma/Montana) (HCSC) (headquartered in Chicago, IL), and its subsidiaries, HCSC Insurance Services Company and GHS Health Maintenance Organization. Concurrently, A.M. Best has affirmed the debt rating of “a+” on HCSC’s existing $500 million 4.7% senior unsecured notes due 2021.

A.M. Best has also affirmed the FSR of A+ (Superior) and the ICRs of “aa-” of Dearborn National Life Insurance Company (Dearborn National) (Downers Grove, IL) and its subsidiary, Dearborn National Life Insurance Company of New York (Pittsford, NY). Additionally, A.M. Best has affirmed the FSR of A (Excellent) and the ICR of “a” of Colorado Bankers Life Insurance Company (Greenwood Village, CO), a subsidiary of Dearborn National. The outlook for all ICRs and debt ratings was revised to stable from positive, while the outlook for the FSRs remains stable.

The affirmation of the ratings of HCSC and its subsidiaries reflects the organization’s leading market position and brand strength, enrollment and premium growth and a strong level of risk-adjusted capital. HCSC continues to be a market leader in its primary markets operating as the Blue Cross Blue Shield plan in five states. The company’s business is fairly diversified geographically, but operations in Illinois and Texas are a main driver of overall results for the group. HCSC offers a comprehensive portfolio of core health and complementary products and operates in numerous market segments, including health insurance exchanges. Premiums and enrollment growth were reported across several market segments, being most pronounced in individual commercial sourced predominantly through exchanges. Additionally, commercial group business remains an important market segment for HCSC, driving a large portion of premiums and enrollment volume. Government business – including Medicare and Medicaid offerings – has exhibited solid growth over the last year; however, the segment makes up a small portion of overall enrollment and premiums for the group. Moreover, HCSC had been building its capital levels in preparation for the enrollment gains they achieved over the past two years. As a result, the group’s risk-adjusted capitalization has declined, but it remains strong.

The revision of the outlook to stable from positive is driven by near-term underwriting and net losses reported by the group. These results were driven mostly by the adverse effects of the grandfathering of individual commercial plan selections, which had not been part of HCSC’s pricing assumptions for this segment, as well as the high degree of uncertainty around the risk corridor payments for individual exchange enrollment.

Given the revision of the outlook to stable, A.M. Best believes a positive rating action on HCSC is unlikely in the near to medium term. A negative rating action could occur if the organization is unable to sustain operating profitability, reports a considerable deterioration in risk-adjusted capital or experiences a significant decline in premium revenue and/or enrollment.

The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

Key insurance criteria reports utilized:

  • Analyzing Insurance Holding Company Liquidity
  • Insurance Holding Company and Debt Ratings
  • Rating Members of Insurance Groups
  • Risk Management and the Rating Process for Insurance Companies
  • Understanding BCAR for U.S. and Canadian Life/Health Insurers

This press release relates to rating(s) that have been published on A.M. Best's website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please visit A.M. Best’s Ratings & Criteria Center.

A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2015 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.

Contacts

A.M. Best Company
Bridget Maehr, (908) 439-2200, ext. 5321
Senior Financial Analyst
bridget.maehr@ambest.com
or
Joseph Zazzera, MBA, (908) 439-2200, ext. 5797
Assistant Vice President
joseph.zazzera@ambest.com
or
Christopher Sharkey, (908) 439-2200, ext. 5159
Manager, Public Relations
christopher.sharkey@ambest.com
or
Jim Peavy, (908) 439-2200, ext. 5644
Assistant Vice President, Public Relations
james.peavy@ambest.com

Contacts

A.M. Best Company
Bridget Maehr, (908) 439-2200, ext. 5321
Senior Financial Analyst
bridget.maehr@ambest.com
or
Joseph Zazzera, MBA, (908) 439-2200, ext. 5797
Assistant Vice President
joseph.zazzera@ambest.com
or
Christopher Sharkey, (908) 439-2200, ext. 5159
Manager, Public Relations
christopher.sharkey@ambest.com
or
Jim Peavy, (908) 439-2200, ext. 5644
Assistant Vice President, Public Relations
james.peavy@ambest.com